The Mc-Business Model: McDonald’s in the 21st Century

Written by
Nick Ko

What’s more American than Apple Pie? Burgers and lawsuits. And a whole lot of computers. McDonald’s arguably hand built the fast food industry, and is now changing the business model that made it so successful.

The Three Legged Stool

Before we can understand what McDonald’s is changing their business model to, we need to understand what it was.

In a nutshell, they applied assembly line techniques to their restaurants to increase productivity. Great idea, right? That’s not even the good part.

It’s a triangle; a system of interactions between the larger holding company (suppliers), independent owners (franchisees), and store employees. Since its creation by Ray Kroc in the 1950’s, it’s worked out well for everybody.

Well, almost everybody.

Recently, the third leg of the stool has been up in arms about McDonald’s poor wages and working conditions. But that’s not the fault of the parent company, is it? It’s the franchiser’s problem, right?

That’s the problem; nobody really knows.

McLawsuits

Running a multibillion dollar conglomerate comes with a few perks. The corporate jet, for example. Then there’s the other side of the coin, where you have to keep your huge legal team on retainer for the multitude of (not so) frivolous lawsuits that come in.

So, lawsuits are just a part of the business, right? These corporate hotshots surely know how to deal with them.

Not if it challenges the whole business model that McDonald’s, and the rest of the fast food industry, has been operating on.

Workers are suing for unfair pay, pushing for $15 an hour. McDonald’s, in response, said that they would begin automation in all of their US stores. So instead of talking to a pubescent teenager with voice cracks, your orders might be made via computers and robots.

But we’ll get to that later. Right now, we’re talking about lawsuits.

If you look at a worker’s checks and paystubs, it’s the franchisee who signs and pays the workers, not the parent company. Therefore, logic states that if they want to sue, they should sue the franchisees, and not the franchiser.

The workers, though, claim that the McDonald’s parent company is actually “the boss”. The parent company, after all, is in charge of menu, uniforms, supplies, training materials, and even the computers used.

They also claim that this is a system designed for the parent company to avoid all responsibility and shift it all towards the franchisees. That’s why they’re suing; they’re suing the McDonald’s Corporation for short pay and firing via union activism.

All this, in turn, is bad news for McDonald’s and company. If McDonald’s becomes joint employers, then they’re equally as responsible as the franchisees.

That is why they’re shifting their business model.

But instead of appeasing to worker’s demand, they’re using their massive capital and the cheap abundance of computers to circumvent the “third leg.”

The BigMac(intosh)

Like I said, we’ll get to the computers later. And it is now “later.”

McDonald’s is fighting fire with silicon. Instead of bending to worker will, they’re trying to automate their stores, and it makes a lot of financial sense.

If they’re required to pay the $15 an hour, their profit margins are going to shrink drastically. So instead of losing a decent amount of money in perpetuum, they’d rather buy computers to do something that computers already basically do.

They’re going to have the customer, via touch kiosk or mobile device, order their meals.

It makes cents, though. These companies’ business models rely on (or exploit, as some would say) cheap labor. So if cheap labor becomes not so cheap anymore, there’s no point in keeping it; especially with the ubiquity of computers, a one-time investment will last for years and years.

Not only that, there are none of the costs associated with people; no unemployment insurance, no healthcare insurance, no training.

This is not some far off future; Skynet is here!

Just kidding. But, a McDonald’s in Phoenix, Arizona, has become almost entirely run by robots. The results? They work 50x faster, more efficiently, and there are no more errors.

This is the shift of the McDonald’s business model; instead of the “three legged stool”, they’ve become something more akin to a bicycle; it only takes two, and the profits just keep on rolling in.

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Nice!

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